Asset Allocation: Fallacies, Challenges, and Solutions

Challenges applying modern portfolio theory to structure efficient, real-world portfolios remain for both academics and practitioners alike. Mark Kritzman will share insights from his new book with Will Kinlaw and David Turkington, A Practitioner’s Guide to Asset Allocation. First, he will discuss how a collection of stubbornly persistent fallacies including the notion that asset allocation explains more than 90 percent of performance, that time diversifies risk, that optimization is hypersensitive to estimation error, and that factors provide greater diversification than assets. Second, he will show how to construct palatable portfolios without resorting to arbitrary constraints, how to deal with estimation error, and how to use regime forecasts to dynamically adjust allocations.

Speaker

Mark P. Kritzman is the president and chief executive officer of Windham Capital Management, LLC, and also serves as a senior partner of State Street Associates. Mr. Kritzman is also a Senior Lecturer in Finance at the MIT Sloan School of Management. He serves on the boards of the Institute for Quantitative Research in Finance and the Investment Fund for Foundations, and on the editorial boards of the Emerging Markets Review, the Financial Analysts Journal, the Journal of Alternative Investments, the Journal of Asset Management, the Journal of Derivatives, and the Journal of Investment Management. Mr. Kritzman has written numerous articles for academic and professional journals, focusing on investing and risk management. He is the author of six books, including Puzzles of Finance and The Portable Financial Analyst. Mr. Kritzman holds an MBA from New York University and a Chartered Financial Analyst designation.